Lower down payment rules for mortgage default insurance

The federal government announced April 20, 2007 it was lowering the minimum down payment requirement for mortgage default insurance from 25 per cent to 20 per cent. This is good news for homebuyers, and homeowners looking to refinance. The new legislation within Bill C-37 affects all mortgages or loans on residential property and requires that borrowers carry mortgage default insurance when the loan-to-value (LTV) exceeds 80 per cent. The previous 75 per cent maximum LTV had been in place for 40 years. The potential savings to borrowers is a good thing. For example, the savings on a $200,000 mortgage over 25 years, on a home valued at $250,000 is approximately $2,000. Most of the banks have been quick to respond to the new legislation which is no small feat for some of them whose systems are a tad antiquated.

We are now one step away from matching a better solution to mortgage default insurance as is practiced in the US. However, I am keeping my eyes open to the new arrival of PMI Canada. The lasted mortgage default insurance provider to arrive in Canada (April 26, 2007). Yes, we have now matched the minimum down payment requirement, but we still should have the option to pay for this insurance monthly, and be able to drop it when our equity has reached the requisite 20 per cent mark. Stay tuned...